The Numbers
Labor's original CGT proposal would have replaced the 50% discount with cost-based indexation, pushing the maximum effective tax rate on founder exits near 47%. For early-stage founders with negligible cost base to index from, that meant doubling their tax bill on exit.
The government has now carved out:
- Small businesses under $10 million turnover: keep the 50% active asset reduction
- Coverage extends to 98% of active businesses, all 2.7 million active small businesses
- New "innovative business CGT concession" announced, criteria not yet public
What Changed
The backlash was loud enough to move policy. Founders and VCs argued the change would:
- Deter risk-taking in a market already struggling for capital
- Push investment offshore to lower-tax jurisdictions
- Kill equity compensation as a viable tool for early-stage hiring
The startup argument: if you tax founder exits at wage-earner rates, you remove the upside that compensates for startup risk. That changes the math on whether it is worth building in Australia.
What Still Applies
From July 1, 2027:
- Capital gains on assets purchased before that date: still get the 50% discount
- Assets after: inflation indexation plus 30% minimum tax
- Negative gearing abolished for established dwellings
- New 30% minimum tax on discretionary trust distributions from July 2028
The trust tax change attracted criticism as a "death tax by stealth." Government walked back the application to testamentary trusts after backlash.
Sales Implications
This matters if you sell to ANZ startups. Founder confidence drives spending on tools, services, and hiring. When exit economics change, so does growth appetite.
Watch for:
- Slower hiring in Q3/Q4 2027 as founders wait for policy clarity
- Potential pullback in SaaS, payroll, and cap-table tool spending
- Risk that later-stage companies accelerate exits before July 2027
The "innovative business" carve-out could stabilise sentiment, but details matter. Without clear criteria, expect continued uncertainty in the venture market.
What We Don't Know
Government has not specified:
- How they define "innovative business" for the new concession
- Whether employee equity gets separate treatment
- What happens to ESOP recipients under the new rules
Until those details land, expect founders to keep pushing for clarity.